Michaelmas Term
[2017] UKPC 35
Privy Council Appeal
No 0095 of 2015
JUDGMENT
Rolle Family and Company Limited (Appellant) v Rolle
(Respondent) (Bahamas)
From the Court of Appeal of
the Commonwealth of the Bahamas
before
Lord Sumption
Lord Carnwath
Lord Hughes
Lord Hodge
Lord Briggs
JUDGMENT GIVEN ON
20 November 2017
Heard on 26 October 2017
|
Appellant
Thomas Dumont
Andrew Brown
(Instructed by Alan
Taylor & Co)
|
|
Respondent
Andrew Mold
(Instructed by
Tynes & Tynes and Harcus Sinclair LLP)
|
LORD SUMPTION:
1.
This appeal arises out of a family dispute about title to two plots of
land on Bimini, a group of islands in the Commonwealth of the Bahamas.
2.
The facts can be shortly stated. On 24 May 2006, Emanuel Rolle conveyed
three plots of land on Bimini to his daughter Ena by deed of gift. Some three
and a half months later, on 8 September 2006, he executed two conveyances
purporting to convey two of those plots, Lot 85 and a portion of allotment no
20, to the appellant company, Rolle Family & Co Ltd, for a consideration of
US$100 each. The company is controlled by his son Paul, who is the majority
shareholder and its President and director.
3.
Under section 10 of the Registration of Records Act, Cap 187, successive
conveyances of the same land take priority in the order that they are lodged
and accepted for record in the Bahamas Registry of Records. On 22 May 2007,
stamp duty was paid on the conveyances in favour of the company, and on the
following day they were lodged and accepted for registration in the Registry.
Ena stamped and lodged the deed of gift in her own favour eight weeks later on
18 July 2007. It follows that if the conveyances in favour of the company were
valid, it has title in priority to Ena.
4.
A conveyance, like any other deed, must be signed, sealed and delivered
in order to take effect. Both deeds in favour of the company were expressed to
have been signed, sealed and delivered on the date of execution, 8 September
2006. The problem arises from the fact that although on that date lawyers had
been instructed to incorporate the grantee company, the formalities were not
completed and the company did not come into existence until 12 September 2006,
four days later. It follows that at the time when the conveyances were
executed, there was no grantee in existence in whose favour the deed could be
delivered. The general rule at common law is that a company cannot adopt or
ratify a transaction purporting to have been made on its behalf before its
incorporation: Natal Land and Colonisation Co Ltd v Pauline Colliery and
Development Syndicate Ltd [1904] AC 120. In the ordinary course, the result
would be that the conveyances in the company’s favour were void.
5.
The company seeks to avoid this result in two ways. First, it submits
that the conveyances of 8 September 2006 were delivered as escrows, conditional
on the incorporation of the company and taking effect as valid grants when that
condition was satisfied. Secondly, the company relies on section 22 of the
Companies Act, Cap 308, which validates pre-incorporation contracts on certain
conditions. Both points have had a somewhat chequered procedural history. The
company relied exclusively on the second point before the trial judge, who
rejected it. In the Court of Appeal, it conceded the second point and relied
exclusively on the first, which had been neither pleaded nor argued at trial.
The Court was not persuaded, and dismissed the appeal. In the result, the
company has so far failed on both of its arguments.
Escrow
6.
An escrow, in this context, is a deed delivered on the basis that it is
not to become the deed of the party making it until some condition is
satisfied. Whether it is delivered on that basis depends on the objectively
ascertained intention of its maker, which may be (and commonly is) inferred
from the circumstances. The condition is said in this case to be the coming
into existence of the grantee.
7.
The Court of Appeal declined to treat the transaction as a valid escrow
on the ground that upon the satisfaction of the condition the grant was deemed
to relate back to the date of delivery. Since the company did not exist at the
date of delivery, the grant could not take effect at that date. In the Board’s
opinion, the Court of Appeal’s decision cannot be supported on that ground. The
doctrine of relation back of escrows is well established. The ordinary
principle, as Farwell LJ put it in Governors and Guardians of the Foundling
Hospital v Crane [1911] 2 KB 367, 377, is that an escrow is a “document
delivered upon a condition on the performance of which it will become a deed,
and will take effect as from the delivery”. But it is equally clear that the
grant does not relate back to the date of delivery for all purposes. As Lord
Cross of Chelsea explained when delivering the advice of the Board in Security
Trust Co v Royal Bank of Canada [1976] AC 503, at p 517, it is “taken to
relate back to the date of its delivery … only for such purposes as are
necessary to give efficacy to the transaction - ut res magis valeat quam
pereat.” Thus the effect of the doctrine of relation back is that no further
delivery is required upon the satisfaction of the condition. And if the grantor
dies after delivery but before the condition is satisfied, the deed will not
fail. But the grantee will not be entitled to intervening benefits, such as
rents accruing during the period when the deed is suspended. The doctrine
cannot be deployed as the Court of Appeal deployed it, for the purpose of
retrospectively invalidating the deed. Assuming for the moment that a deed can
validly be delivered in escrow on the condition that the grantee comes into
existence, it would be incoherent for the law to relate it back to a time when
the grantee did not exist so as to defeat the escrow.
8.
The real objection to the supposed escrow is a more fundamental one,
namely that a deed cannot validly be delivered in escrow on a condition as to
the coming into existence of the grantee. This is because, although delivery of
a deed in escrow suspends the effect of the deed as a grant until satisfaction
of the condition, it creates legally binding obligations from the moment of
delivery. The maker of the escrow cannot, for example, recall it before the
condition is satisfied, or dispose of an interest in the land inconsistently
with it. The principle was succinctly stated by Sir Denys Buckley in Alan
Estates Ltd v W G Stores Ltd [1982] 1 Ch 511 (CA), at p 527F-G. The maker
“cannot resile from the terms and effect of the document which he has
‘delivered’ notwithstanding that he may have delivered it in circumstances
which for the time being deprive it of operative effect and enforceability”; cf
Lord Denning MR at pp 520-521. It follows, as Cross J pointed out in Windsor
Refrigerator Co Ltd v Branch Nominees Ltd [1961] 1 Ch 88, 102-103, that if
at the time of delivery the grantor lacks capacity to assume even a conditional
obligation, for example because he is a minor, there cannot be a valid escrow,
and it can make no difference that he acquired capacity by the time that the
condition was satisfied. By the same token, if the grantee does not exist at
the time of the purported delivery, there is no one to whom the grantor can be
bound, even conditionally. Delivery is an essential condition for the
effectiveness of a deed. It requires unequivocal words or conduct signifying an
intention to be bound. A deed purportedly delivered to a non-existent party
could never be more than a statement of intention, recallable at will, and
could not therefore be said to have been delivered.
9.
This makes it unnecessary to consider whether there is any sufficient
reason to suppose that Emmanuel Rolle intended to deliver the deed in escrow,
or whether in the absence of any pleaded case to that effect, the point should
have been entertained at all.
Section 22 of the Companies Act
10.
It is, as the Board conceives, because of the conceptual impossibility
of assuming an obligation conditional upon the obligee coming into existence,
that pre-incorporation contracts are commonly dealt with by specific statutory
provision. Section 22 of the Companies Act is the relevant enactment in the
Bahamas. It provides, so far as relevant:
“22.(1) Except as provided
in this section, a person who enters into a written contract in the name of or
on behalf of a company before it is incorporated is personally bound by the
contract and is entitled to the benefits of the contract.
(2) Within a reasonable time
after the company is incorporated, it may, by any action or conduct signifying
its intention to be bound thereby, adopt a written contract entered into in its
name or on its behalf before it was incorporated.
(3) When a company adopts a
contract under subsection (2) -
(a) the company is bound by
the contract and is entitled to the benefits thereof as if the company had been
in existence at the date of the contract and been a party to it; and
(b) a person who purported
to act in the name of the company or on its behalf ceases, except as provided
in subsection (4), to be bound by or entitled to the benefits of the contract.”
11.
The effect of these provisions is that an instrument which purports to
be an agreement but is void because there is no counterparty in existence, is
nonetheless deemed to be an agreement for the purpose of binding (i) the person
who purported to make it on behalf of the company, and (ii) the company itself
if it adopts the transaction in accordance with subsection (2) in place of that
person.
12.
The first condition which calls for attention on this appeal is that the
instrument should purport to be a “written contract”. It is unnecessary to
decide whether any deed is to be regarded as a contract for the purpose of the
section. The Board is satisfied that the deeds in question on this appeal
purported to be written contracts. In the case of Lot 85, there can be no real
doubt about this. It provides for the company to assume an executory obligation
to observe and perform an exception and reservation in the Crown grant from
which the grantor’s title is derived, and the instrument is signed by Paul
Rolle, apparently on behalf of the company. The conveyance of allotment no 20
is not executed on behalf of the company, presumably because the company’s only
obligation under that transaction was the payment of the consideration of
US$100, which is acknowledged to have been paid. But an agreement may be in
writing notwithstanding the absence of a signature. The conveyance of allotment
no 20 recites a prior unwritten agreement between the grantor and the grantee
for the sale of the land in consideration of US$100. It then subsumes the terms
of that agreement into the deed. It also acknowledges receipt of the US$100
from the company and thus the satisfaction of the company’s obligation. In the
Board’s opinion, the transaction effected by the deed was a bilateral
transaction involving mutual obligations. In other words it was a contract.
13.
The next condition is that the company should have adopted the contract
after its incorporation by some “action or conduct signifying its intention to
be bound thereby.” It was submitted that this formulation means that there must
be some executory obligation by which the company would be bound upon adopting
the transaction. In the case of Lot 85, there is such an obligation. But the
Board would reject the submission in principle as regards both instruments,
because the suggested limitation on the right to adopt a pre-incorporation
contract would serve no purpose that can be related to the object of section 22
or sensibly be attributed to the legislature. It is entirely unclear why, for
example, if the sole obligation of the company is to pay the price, it should
be entitled to adopt the transaction where the price remained to be paid but
not where it had already been paid. In the Board’s opinion, the words quoted
are simply intended to ensure that the company consents to being party to the
transaction so as to assume whatever burden there may be, and not just the
benefit. It does not imply anything about the incidence or extent of that burden.
In the present case, the payment of stamp duty and the lodging of the
conveyance at the Registry in the company’s name unequivocally signified its
assent to be bound by the deed.
14.
The main difficulty, as the trial judge perceived, lies in the third
condition, that the transaction should be adopted “within a reasonable time
after the company is incorporated.” What is a reasonable time for the purpose
of a statutory provision like this must depend on what falls to be done in that
time. In the case of section 22, it means a reasonable time for the company to
decide whether to adopt the transaction and to take the necessary steps to do
so. There are practical reasons why the delay should be as short as is
consistent with that object. The temporal limitation is not there for the
benefit of the company. It is there for the benefit of third parties dealing
with it. The decision whether to adopt a pre-incorporation contract affects the
company’s assets and liabilities, and thus the transactions which it is in a position
to enter into with third parties. It affects the person who purported to enter
into the transaction before the company’s incorporation, who needs to know
whether he is to remain personally liable and entitled under the contract or to
have his rights and liabilities transferred to the company. It is no part of
the purpose of the temporal limitation to allow time for the company to
appreciate that there is a problem. If it were, there would be no effective
limit of the time that might pass before the adoption of the transaction. The
Board accepts that there is room for argument about how long was reasonably
required, but it considers that the eight and a half months that elapsed
between the execution of the conveyances and the stamping and lodging of the
deed for registration was well beyond the limit of reasonableness. The trial
judge dismissed the action on that ground. The Board considers that he was
entitled to do so.
Consequences
15.
It follows that the company does not have title to the two plots purportedly
conveyed in September 2006.
16.
That leaves unresolved the question who does have title. It will not
necessarily be Ena, because it is arguable that since the transaction is void
at common law and the company cannot claim title by adoption under section 22(2)
of the Act, the legal owner is Paul by virtue of section 22(1). Another
possibility is that Ena might derive rights from the fact that the failure of
the company’s claim leaves her as the only claimant on whose behalf any
conveyance has been lodged for registration with the Register of Records. The
Board is unwilling to express a view on these points, because Paul Rolle is not
party to these proceedings, and the implications of the Board’s conclusions
have not been fully addressed in the arguments on this appeal. They would need
to be properly considered as between Paul and Ena Rolle in proceedings to which
both of them were parties.
17.
The only question under this head which the Board thinks it right to
address, arises out of a submission made on behalf of the company to the effect
that if Paul Rolle has the legal title to the two plots by virtue of section
22(1), he would hold it on trust for the company. The Board cannot accept this,
because it is not consistent with the statutory scheme. The scheme makes the
company’s interest in the transaction dependent on its adoption of the
transaction within a reasonable time. Equity cannot intervene to create a trust
inconsistent with the statutory principle.
Disposal
18.
Accordingly, the Board will humbly advise Her Majesty that this appeal
must be dismissed. Subject to any written submissions which may be addressed to
the Board within 14 days, the company must pay Ena Rolle’s costs of the appeal.
